What investment vehicles could be involved in an arbitrage transaction?

The correct answer points to the fact that arbitrage transactions involve taking advantage of price discrepancies for the same asset or similar assets across different markets. In this context, various securities traded on different markets are fundamental. Arbitrage can encompass a wide range of financial instruments, including stocks, bonds, options, and even currencies. The key to arbitrage is the ability to buy low in one market and sell high in another, which applies to different types of securities.

This method does not limit itself to a specific class of asset like only equity funds, government bonds, or mutual funds. Instead, it capitalizes on price variances across markets, making a diverse selection of securities relevant. For example, if a stock is priced lower on one exchange than another, an arbitrageur can buy on the cheaper exchange and simultaneously sell on the more expensive one, regardless of whether the asset is an equity, a bond, or a commodity. This illustrates the nature of arbitrage as a strategy that thrives on market inefficiencies and price differentials among various securities.